This article first appeared in The Edge Financial Daily on March 30, 2018 - April 5, 2018

OCK Group Bhd
(March 29, 80.5 sen)
Maintain outperform with an unchanged target price of 95 sen: OCK Vietnam Towers Ptd Ltd, a sub-subsidiary of OCK Group Bhd, has entered into an exclusive one-year memorandum of understanding (MoU) agreement with ISOC Infrastructures Inc, which is mainly involved in the logistics, property, energy and infrastructure businesses, to pursue opportunities to acquire, install, operate, maintain and manage telecom tower assets in the Philippines. The collaboration also allows both parties to explore opportunities in roll-outs of new towers/greenfield projects and potential sale-and-leaseback projects from mobile telecom operators.

The Philippines has about 16,300 telecom towers as at the end of the third quarter of 2017, according to TowerXchange, a research outfit. The country has no independent tower companies as sizeable towers are controlled by Smart Communications Inc, a wholly-owned wireless communication and digital services subsidiary of the country’s largest telecommunications and digital services provider — PLDT Inc — while the rest belongs to Globe Telecom. The research outfit also highlighted that operational costs in the Philippines are phenomenal due to the geography of the country as maintenance visits to a remote tower would require various transportation modes. This has resulted in significant outsourcing to managed service subcontractors. To counteract the operating expenditure challenge, both Globe and Smart are currently investing in substantial network modernisation programmes, including the upgrade of backup power solutions.

The execution of the MoU is not expected to have any financial impact on the group in financial year 2018. Nevertheless, we understand that management is hoping for a positive contribution to its earnings in the future should the projects be finalised and commercialised.

The recent share price weakness could provide bargain-hunting opportunities to long-term investors given the group’s intact prospects. We continue to like OCK for its healthy cash flow on the back of an escalating recurring income trend, ability to ride with the passive infrastructure sharing trend, the earnings before interest, taxes, depreciation and amortisation margin expanding trend, and potential growth through merger and acquisition activity. — Kenanga Research, March 29